Analytics, Education and Science, EU – Baltic States, Forum, Investments, Latvia, Round Table

The article is prepared for the Round Table “Regional economy’s transformation in the Baltic Sea Area”, organised by the Baltic International Academy, Latvian Employers Association and International Web-Magazine “The Baltic Course” on 21^st of October in Riga, Latvia. 

The round-table’s theme was not chosen at random; it was instigated by the two trends presently affecting the Baltic regional development: first, existing financial and economic crisis that changed drastically business activity in the Baltic States and, second, the new strategy adopted by the European Commission, which intended to provide new stimuli into the economic development of the three Baltic States and the whole Baltic region, as well. 

A number of international experts took part in the round-table; for the first time several doctorate students took part in the discussions (they represented a newly opened Doctorate Degree Department in the International Baltic Academy).

Dr. Olga Pavuk, the round-table moderator has been chairing the event already for the fourth year in a track. The Academy’s Doctorate Degree Department director, prof. Inna Stecenko at the International Baltic Academy presented the participating doctorate students and herself took active part in the discussions.

Economists, politicians and academia from Latvia, Estonia, Poland, Ukraine, Slovak Republic and Denmark presented their reports and research papers for the round-table.

I. Stecenko, E.Eteris, S. Buka.

Opening the round-table, the International Baltic Academy Senate Chairman, prof. Stanislav Buka noted that the round-table was quite a remarkable event in two instances: meaning that it was convened about half a year ahead of the special international conference to be held in Poland in June 2010, and from the point of view that the round-table was devoted to economic policy issues and economic transformation in the countries of the Baltic Sear region. 

Prof. Buka has acknowledged that the new Baltic States still do not have a feasible economic policy’s strategy. Partly, he argued, that was the result that the old school of professional economists was not up to the new challenges. “Such situation calls therefore for our Academy to educate a new academic staff, which would deal with the new teaching requirements and formulate new approaches to national and global issues”, he added.

Senate’s chairman noted that unbalanced and uncontrolled growth had resulted in the Baltic States in the catastrophic macro-economic consequences. Ever-growing financial system in the small Eastern European countries provided conflicting macro-economic effect, in part due to almost uncontrolled foreign banks’ intrusion into these states. Global community has already decided that the financial sector needs adjustment, until it is not too late. At the same time, the “protective umbrella”, which was provided for these states by the European Union institutions, has revealed unexpected “holes” leading to extremely negative consequences for the new and young Baltic economies.     

Mr. S. Buka urged the round-table participants to review such an important issue as comparative economic policies in different countries, thus providing a possible answer to the question of why seemingly adequate decision-making have led to almost diametrically opposite economic outcomes. The resulting answers could possibly provide a new “developmental path” away from dominating economic romantism in politics. Mr. Buka argues that single European market provides for the new Baltic States quite a strong competitive climate, which suggests that the Baltic States’ “partners” in that competition could be both the EU members and the so-called “undemocratic” Belarus, as well as resourceful and financially reach Russia. “We sometimes forget that all EU member states, as well as those in the near Baltic Sea region, are more than our colleagues, they are our “competitive colleagues”, he argued.

Mr Buka suggested concentrating additional research efforts on elaborating a “new realistic economic course”, which would not necessarily remind the round-table participants of a “new economic policy” (known as NEP of 1920s in socialist political economy).      

H. Barabaner, V. Zalyuksne, G. Reshina, K. Dauksts.

Polish representative, Jacek Zielenski, doctor of political science, has drawn attention to two elements specific for the present Polish economic development.

First element is that of a growing trend towards so-called “easy privatisation”: e.g. public servants are getting use to turn state property into private hands without any sense of remorse. Mr. Zielenski provides an example of so-called hotels for public deputies, the phenomenon which exist in all countries: in Poland through a room in such a “hotel” about 700 deputies can be accommodated.

Polish professor is dissatisfied with the procedure through which the civil servants in the country acquire (it would be proper to say, buying) state property. It goes in the following way: two rounds of public tenders are publicly announced; through the first round none of the applicants could get through, however in the second round only one applicant shows up as a “real contestant”. “The system looks like a 100 per cent theft”, said Polish political scientist.    

Second element is that of growing pace of legislative activity and various regulations in the country. Government offices adopt numerous laws for their own use, which often substitute for the real development programs.

The matter of truth is that very often not the best members of the civil society are elected to public services. 

Rector of Estonian Institute of Economics and Management (Ecomen), Dr., prof. Hanon Barabaner, has chosen for the round-table discussion the peculiar aspects of the present economic and financial crisis. He argued that not all politicians are aware of the fact that “we have entered the stage of permanent crisis”, which the scientist called “multi-systematic crisis”. The latter consists of the following set of crisis: financial, currency, economic, energy, social, etc. which are all forming the modern complex of the present “complicated crisis”. Though, he added, “we do not have to forget that it is the crisis of political system which is in the background of the present one”. 

The institute’s rector postulated that “we are witnessing the formation of a mega-system of governance; it is big question, whether classic theories of economic dependences can be adequately used in that system”. It seems that even such classic economic issues as well-known Kondratiev’s development waves do not apply here, argued Estonian rector.     

Mr. Buka added to the discussion that the modern crisis was to be regarded as the first full-scale global crisis, and could be termed as civilization crisis, to which the new explanatory instruments should be applied. One of the new crisis’ features is that of the information crisis.

Estonian scientist attracted attention to the dramatic energy situation that occurred in the world,  which has resulted in drastic differences in availability of energy resources - among various countries in the world; sometimes the difference has been in hundred times.

Ecomen’s rector thinks that in order to resolve the security of energy supply in Latvia, Lithuania and Estonia these estates have to elaborate a “unified energy system”; such unification can produce a strong synergetic effect. Regional economic transformation can play as a supplement argument in resolving present economic issues in the Baltic States. At the same time, security of energy supply can help in re-creating valuable energy-extensive sectors of industry, concluded prof. H. Barabaner.     

Academy’s doctorate student, Veronica Selenevich presented for the round-table a report concerning Latvian renewable resources situation and development. She argued that a key word for the country’s energy sustainability is that of “energy integration”. There are more that 200 stations producing electric energy, generally subsidised by the state, which use various resources, e.g. hydro, wind, biomass, etc. The doctorate student thinks that during the crisis time the new and priority directions for energy development must be taken into consideration, such as the perspective construction of wind stations, which is going to become the main as well as a perspective path for Latvian energy development future.

G. Reshina, K. Dauksts, P. Baranay, A. Teteris.

Latvian Employers Confederation’s representative and Confederation’s expert, Ansis Teteris talked during the round-table discussions about the use of various EU funds in Latvia. He attracted the participants’ attention to the role of state in getting out of the present critical situation.

Mr. Teteris reminded the audience that usually, at a critical situation countries are trying to develop infrastructure projects, e.g. building roads, providing energy-efficient solutions to construction, etc. As to Latvia, he acknowledged, only 4 percent of the EU structural funds is used for road construction, though until 2013 Latvia is eligible to about 4, 6 bln euro of financial support for development.  

The main hindrance to the EU funds’ proper usage in Latvia, according to Mr. Teteris, is existing bureaucratic government’s barriers. In order to understand how the political decisions in the spheres of allocating EU resources are adopted at the government level, he underlines, one has to remember that there is an important component in all decision-making, i.e. applicants’ own financial resources, which are presently in a difficult situation in all parts of the country.

International Baltic Academy’s professor, Ganna Reshina argued in this regard, that there was not unfortunately in Latvia such an expert in financial programming as Dalia Grybauskaite in Lithuania, who served several years as the Commissioner on budget in the European Union; she made a lot of positive things for Euro funds’ allocation in Lithuania.

Taking part in the discussion, Mr. Eugene Eteris, Danish professor and expert in the EU law and economics, reminded about an unpleasant fact that out of nearly 400 applications for SME’s development projects through Euro funds’ assistance in Latvia only 4 had been approved by the European Commission.

He underlined that Latvian Employers Confederation could do a good job for the successful allocation of European Commission’s available funds providing adequate information for applicants, first of all informing applicants of the European requirements for all projects and grants with European participation. Besides, each EU member states’ capital (and sometimes other big cities) has its permanent representative office in Brussels to coordinate the EU funds’ allocation. So far, Riga does not seem to have such a representation. 

Mr. Pavol Baranay, Head of the Commercial and Economic Section, second secretary, Slovak Republic, as an active participant in the discussion, underlined an important role of national confederations, associations and trade chambers in economic development and progress.

The problem for the new EU member states, according to Mr. Baranay’s opinion lies in the lack of popular trust to national politicians.

At the same time, he pointed out to the positive Lithuanian example, where in the city of Kaunas about 97 percent of all European funds have been successfully appropriated, the fact that is regarded as optimal.

Latvia, he thinks, has to modernise the system of project application for European funds. As the Diplomatic Economic Club president, Mr. Baranay stressed a high level of corruption in Latvia; as compared to Estonia, he said, where, for example, it is almost impossible to bribe a road policeman.

All the three Baltic States have originated from the same “melting pot” the former Soviet Union, he continued, however each of these countries have taken their own way in resolving economic problems.   

Despite the fact that Latvia and Slovakia in early 90s stated their independence paths in similar economical and political conditions, they also tackled their policies and problems differently. Currently, the Vishegrad group, V4, helps Czech Republic, Hungary, Poland and Slovakia to create a common position, to accumulate voices on many problems discussed on European forums, the example which could be emulated in the Baltic States. 

As to his own country, the Head of the Slovak Republic Embassy’s Commercial and Economic Section proudly acknowledged that, according to IMF evaluation his country is regarded as the quickest developed nation in the whole European Union. In this respect he stressed the positive role of previously adopted government trend in auto-motor industry development in Slovakia, where about 80 thousand people are presently employed.   

Another Academy’s doctorate student, Ms. Victoria Zaluksne in her presentation revealed her view on small cities’ development issues; she took as an example the city development plan for the Latvian city of Jaunelgava. In analyzing all pros and cons in the city’s development, she argued, that there were more negative than positive factors. She postulated that small cities need European funds for development strategies; however the cities do not have experienced staff to make responsible applications for such funds.     

Immediately several suggestions from the round-table participants followed for the doctorate student’s report: thus, doe example, Mr. S. Buka suggested such a development model for the city, which would be attractive to anyone, hence more opportunities for the coming funds would appear.

Prof. E. Eteris pointed out that European Union funds can be acquired only if the city development is closely connected to so-called “community method” in regional development. Whereas Ansis Teteris argued in this regard, that the final administrative stage for EU financial support in Latvia is ERAF (a department in the Financial Ministry) and therefore, all the EU projects, as a rule, are written by a specially trained staff there; not a very optimistic and positive administrative structure, he added.    

T. Nosova, V. Selenevich, N. Sotikova and J. Zielinsky.

Next Academy’s doctorate student, Natalija Sotikova suggested a new topic for the round-table, i.e. exploring additional tourism potentials for the territory development in Latvia. The student concentrated on such tourist development directions as recreation, medical treatment, and summer holidays, which traditionally attracted to numerous Latvian resorts, mainly on the sea side, plenty of people. She mentioned also such direction as “rural tourism”, which became quite popular in 1990s, and so-called “intensive tourism”, which is gaining popularity presently.

Ms. Sotikova reminded the audience that the share of Latvian tourism in the country’s GDP reached about 1,5 per cent in 2008. Out of the whole total national share of export services - being at the level of 2,2 bln LVL, tourism’s share is about 17,6 per cent, or next to one-sixth, or about 384 mln LVL. The present economic crisis has greatly damaged the tourism sector, which reduced the sector’s role by about 30 per cent of its turnover. 

Prof. H. Barabaner commented that recreational tourism should be supplemented with such popular nowadays directions as business tourism, ethic- and historic-tourism, as well as “social tourism” oriented towards specific social groups. He used in argumentation an Estonian city of Pjarnu, which attracts Finish and other Nordic countries tourists with “restricted budget’s opportunities”.

Ms. Tamila Nosova, International Baltic Academy’s doctorate student shortly described regional aspects of higher education facilities in Latvia and reminded that university education, at least in theory, is closely associated with the so-called “soft factors in regional development”. As to the qualitative changes in Latvian high education, the doctorate student stressed such main process issues as the formulation of the dominant spheres of education for future students, perspective teaching methods, as well as the places of education delivery – the latter factor plays significant role for regional approaches to the issue. In this regard, she argued, a social dialogue is needed, though the background of high education must be initiated by the Latvian universities.    

Mr. Alexander Gluzman, Crimean Humanitarian University rector (Ukraine) informed the round-table about the high education development experience in Ukraine (the rector’s interview to the BC was presented). The University’s rector visited Riga recently and told the BC staff about a three-level approach existing in Ukraine towards high education (Crimean territory was used as an example), as well about the role of public authorities and the state in promoting educational issues and students’ employment facilities. 

Academy’s docent and prominent Latvian political scientist, Dr. Karlis Daukshts dwelled on philosophic issues of economics and politics in so-called “modes for a national survival”. To his mind, the correlation between the two is ambivalent and driven by interrelated changes in wider and narrow sense.

However, he added, politics – both in Latvia and in other countries- must be based on education. “We are often becoming too provincial in resolving our problems and do not even try to use some positive examples in our neighbours’ development experience”, he concluded.

Round-table’s moderator, Dr. Olga Pavuk underlined the importance of regional development both for the expansion of tourism activities in the Baltic States for foreign visitors/tourists and for possible foreign investors showing their willingness to use resources for territorial development and infrastructure, e.g. hotels, restaurants, amusement sector and international exhibitions. As examples, some recent Riga City Council’s initiatives have been revealed, those aimed at positioning Riga’s positive image on an international stage using new city’s brand – LIVE RĪGA; the brand is already regarded as positive from the point of view of its recognisable effect serving as an additional positive sign for country’s transition from the present crisis.

Riga is definitely regarded as an important part in the national development strategy, e.g. it is in the country’s capital that about 80 per cent of foreign investments are concentrated, the fact that can not be ignored, she added.  

In the round-table’s conclusion a Danish expert, Dr. Eugene Eteris shortly described the perspectives for the Baltic Sea regional development in view of the recently adopted by the European Commission a special sub-regional strategy (his report is supplemented in the round-table’s file). He underlined that at present it is up to eight EU member states of the Baltic Sea region, as well as Russia, to adequately implement the strategy’s objectives.

Dr. E. Eteris pointed out to another aspect of the issue: regional policy has become -since early 1990s- one of the focal points in the EU development directions; at present it is mentioned as a priority strategy of the Union. The EU strategy for Baltic Sea can serve as a solid background for economic development in all countries surrounding the Baltic Sea.